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STATEMENTS OF IRA L. EWERS, COUNSEL FOR VESSEL REPLACEMENT COMMITTEE OF COMMITTEE OF AMERICAN STEAMSHIP LINES; NOAH M. BRINSON, VICE PRESIDENT, AMERICAN PRESIDENT LINES, LTD.; AND W. LYLE BULL, AMERICAN EXPORT LINES

Mr. EWERS. May it please the committee, my name is Ira L. Ewers. I am counsel for the Vessel Replacement Committee of the Committee of American Steamship Lines (CASL).

CASL unanimously and strongly supports this legislation with the changes which have been suggested. .

I am accompanied by Mr. Lyle Bull, of American Export Lines, one of the companies which have been mentioned, and by Col. Noah Brinson, vice president of the American President Lines, another of the companies which has been mentioned in these discussions, and I, of course, am familiar with the problem as it relates to Moore-McCormack Lines, another company which has been involved with this problem.

I have a prepared statement summarizing the arguments in favor of this legislation which Mr. Alexander has outlined in considerable detail.

The amendments suggested by Mr. Alexander are acceptable to CASL.

I will either present my paper or file it for the record in accordance with the convenience of the committee.

(The statement referred to follows:)

STATEMENT OF IRA L. EWERS, COMMITTEE OF AMERICAN STEAMSHIP LINES My name is Ira L. Ewers. I am counsel for the Vessel Replacement Committee of the Committee of American Steamship Lines (CASL). CASL unanimously and strongly supports this legislation with the changes hereinafter mentioned.

I am accompanied by Mr. Peter Teige, of the American President Lines, and Mr. W. Lyle Bull, of the American Export Lines, who may wish to supplement my remarks and who are, of course, available to answer any questions.

Similar legislation (H.R. 11587 and H.R. 9001) was considered in the 87th Congress and hearings were held by this committee on September 11, 1961, (pp. 157 et seq.), was favorably reported (H. Rept. 2272), and passed the House on October 1, 1962. A similar bill (S. 1183) was considered in the Senate, and favorably reported (S. Rept. 204) but time would not permit its enactment.

Since that time, further study has been given to this legislation with the result that the attached substitute measure we understand cures the ambiguities and meets all of the objections that had been raised by the Comptroller General, the Maritime Administration, the Department of Commerce, the Bureau of the Budget, and various shipowners. In this form it is expected to be reported from the Senate Commerce Committee at an early date.

CASL, therefore, requests that the substitute bill be favorably reported by this committee.

Since we hope that the subject is no longer controversial, I will make brief my remarks in justification of it.

Section 502 (f) if the Merchant Marine Act, as amended, provides :

"The Secretary of Commerce, in connection with ship construction, reconstruction, reconditioning, or remodeling under title VII and section 509, and the Federal Maritime Board, in connection with ship construction, reconstruction, or reconditioning under title V (except sec. 509), upon a basis of a finding that the award of the proposed * * * work will remedy an existing or impending inadequacy in such mobilization base as to the capabilities and capacities of a shipyard or shipyards at a strategic point *** may, allocate such * * * (work) * * * to such yard or yards in such manner as it may be determined to be fair, just, and reasonable * * * subject to all of the terms and conditions of this Act, except those pertaining to the award of contracts to the lowest bidder. * * * In the event that a contract is made providing for a price in excess of the lowest responsible bid which otherwise would be accepted, such excess shall be paid by the Commission as a part of the cost of na · tional defense, and shall not be considered as a part of the construction-differential subsidy".

However, no use was made of the section until 1958, when the attached Department of Commerce press release (E-895, of Feb. 7, 1958) describes what happen then.

These transactions are also described in the Annual Report of FMB and MA for 1961, pages 3 and 4, and in the previous hearings.

The purpose of, and need for this legislation is set forth in Senate Report 204, 87th Congress, 1st session, which accompanied S. 1183, the earlier Senate bill. That report stated that the bill:

“* * * would amend section 502 (f) of the Merchant Marine Act, 1936, as amended by Public Law 805, 84th Congress to provide that in instances where the Federal Maritime Board (under title V of that Act), or the Secretary of Commerce (under title VII), allocates or has allocated a contract for ship construction, reconstruction, or reconditioning to a shipyard other than the one which submitted the lowest responsible bid, not only shall the excess under the allocated contract of the contract price over the lowest responsible bid be paid as a national defense cost, but the shipowner shall also be reimbursed by the Government for the excess of expenses he incurs for inspection and supervision of the vessel and for delivery of the vessel to its home port or a point on its subsidized route equally distant, over the expenses he would have incurred for these items if the lowest responsible bid had been accepted” (p. 2).

Senate Report 204 further states:

"The statutory directive that the 'excess (cost) shall be paid by the Commission has been interpreted, at least informally, by the Maritime Board to bar payments for the additional inspection, supervision, and vessel delivery costs incurred by the shipowner as the result of allocation of the construction, etc., under section 502(f) to a shipyard on another coast of the United States than that on which the home offices of the shipowners and the lowest bid shipyard are located. Included in such excess costs, presently excluded from pay. ment under the Maritime Board's interpretation, are the payments to naval architects and personnel of the operator for supervision and inspection in the more distant yard, increased travel and communications expenses, and the added costs of bringing the vessel from the more distant shipyard to the home port or subsidized route of the operator. In the case of the two American Export Lines' vessels, and the two Moore-McCormack Lines' vessels allocated under the provisions of section 502 (f) to shipyards on the Pacific coast, the excess costs for inspection and supervision, plus costs of delivery to the east coast, including transportation of the crew across country and tolls paid for transit of the Panama Canal, are estimated at $160,000 to $175,000 per vessel" (p. 3).

Both the former bill (S. 1183, 87th Cong.) and the present legislation are retroactive, to cover the two cases mentioned in the report quoted above. On this point Senate Report 204 states:

"Opposition was expressed by both the Board Chairman and the Secretary of Commerce, however, to the retroactive feature of the bill. On this point, your committee could not agree. If such expenditures in the future are in the interest of national defense, as your committee is fully convinced, such erpenditures entailed by allocations since the allocation provision was enacted in 1956 were just as surely in the interest of national defense. They were saddled upon the vessel owners willy-nilly, and objections from the standpoint of cost accounting or otherwise to repayment by the Government of these national defense costs are not valid, we are convinced. Further it is our view that when the 1956 act was passed the Congress intended that all extra costs of such contract allocations would be paid by the Government, rather than by the shipowners" (p. 4).

The House Committee Report (Rept. No. 2272, 87th Cong., 2d sess.) also supported retroactivity, in the following language:

"(1) It is hoped that the revised measure will meet their objections.

"As noted above, this bill retained the retroactive feature. Your committee cannot help but conclude that the equities of the situation are just as applicable to the cases in the recent past as to those which might arise in the future" (p. 3).

Whether and to what extent there will be allocations in the future is a Governmental national defense determination in which the steamship operator does not participate.

The early enactment of this legislation is particularly important because, under amendments to the Merchant Marine Act of 1936, adopted in the last Congress, allocations of ship construction may be made more frequently. It will be recalled that when the 6-percent west coast construction-differential was repealed last year, the Congress recognized the need to amend section 502(f) of the Merchant Marine Act of 1936, providing for allocation of ship construction, in order to preserve a shipbuilding capacity on the west coast. Sec. 502(f) was amended to (a) require that surveys of shipyard adequacies be made annually instead of periodically, (b) permit "impending inadequacies" to be considered as well as "existing inadequacies," and (c) to eliminate the necessity for Presidential approval of allocations.

Details of the extra expenses that were incurred by Mooremack and Export are attached hereto. Operators would incur substantially the same increased expenses if allocations are made in the future.

In earlier discussions a two-way street concept whereby the Government paid for increased expenses but recovered reduced expenses, was urged and opposed. The substitute bill contains what is believed to be a mutually satisfactory twoway street.

CASL urges your prompt and favorable action.

COMPARATIVE TEXT OF S. 1263 (The Senate Commerce Committee has proposed that the parts of S. 1263 where struck through be deleted and that the parts shown in italics be insterted.)

(S. 1263, 88th Cong., 1st sess.) A BILL To amend the Merchant Marine Act, 1936, in order to provide for the reimbursement of certain

vessel construction expenses Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 502(f) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1152(f)), is amended by inserting at the end thereof the following:

"If, az a result of allocation under the this subsection, the applicant incurs expenses for inspection and supervision of the vessel during construction and for the delivery voyage of the vessel in excess of the estimated expenses for the same services that he would have incurred if the vessel had been constructed by the lowest responsible bidder, the Secretary of Commerce (with respect to construction under title V, except section 509) shall reimburse the applicant for such excess, less any gross income the applicant receives that is allocable to the delivery voyage minus the extra expenses incurred to produce such gross income, and such reimbursement shall not be considered part of the construction differential subsidy. If the vessel is constructed under section 509, the Secretary of Commerce shall reduce the price of the vessel by such excess, less any gross income (minus the extra expenses incurred to produce such gross income) the applicant receives that is allocable to the delivery voyage. In the case of a vessel that is not to receive operating-differential subsidy, the delivery voyage shall be deemed terminated at the port where the vessel begins loading. In the case of a vessel that is to receive operating-differential subsidy, the delivery voyage shall be deemed terminated when the vessel begins loading at a United States port on the any essential service for which the vessel was designed, of the operator. In either case, however, the vessel owner shall not be compensated for excess vessel delivery costs in an amount greater than the expenses that would have been incurred in delivering the vessel from the shipyard at which it was built to the shipyard of the lowest responsible bidder. If as a result of such allocation the expenses the applicant incurs with respect to such services are less than the expenses he would have incurred for such services if the vessel had been constructed by the lowest responsible bidder, the applicant shall pay to the Secretary of Commerce an amount equal to such reduction and, if the vessel was built with the aid of construction-differential subsidy such payment shall not be considered a reduction of the construction-differential subsidy."

SEC. 2. The Amendment made by this Act shall be effective with respect to any contract entered into under provisions of sections 502 of the Merchant Marine Act, 1936, as amended, and the Secretary of Commerce shall, with the consent of the other parties thereto, modify any such contract entered into prior to the date of the enactment of this Act to the extent authorized by the amemdment made by this Act, except that the Secretary shall not agree to any such modification which would result in a payment by the United States until provision has been made for payment to the Secretary of an amount equal to the total of any amounts which would be due to the United States under such contracts entered into prior to the date of enactment of this Act if all such contracts were modified in accordance with the amendmen made by this Act.

U.S. DEPARTMENT OF COMMERCE,

OFFICE OF THE SECRETARY. Secretary of Commerce Sinclair Weeks announced today that the President had approved recommendations of the Federal Maritime Board for the award of contracts for the construction of four cargo ships in two west coast shipyards.

The Secretary said this will result in award of construction contracts for the building of a total of eight cargo ships at a cost of some $90 million to shipyards on both east and west coasts.

The construction of four of the eight ships will be allocated under Public Law 805 to two west coast yards. This is the first time this law has been used in the placement of ship construction contracts since its passage by the 84th Congress.

In behalf of the Federal Maritime Board, Chairman Clarence G. Morse said today that the President's action is a positive step in the direction of providing an adequate shipbuilding mobilization base at strategic points for the purpose of national defense. The Board's membership consists of Mr. Morse, Vice Chairman Ben H. Guill, and member Thomas E. Stakem.

The recommendation of the Federal Maritime Board to the President specified that two of the allocated ships for American Export Lines, Inc., are to be awarded to National Steel & Shipbuilding Corp. of San Diego, Calif. The other two, for Moore-McCormack Lines, Inc., will be awarded to Todd Shipyards, Los Angeles Division, San Pedro, Calif. The building of two other ships for Moore-McCormack Lines will be awarded to Sun Shipbuilding & Drydock Co. of Chester, Pa., and two ships to be built for the American Export Lines will be awarded to New York Shipbuilding Corp., Camden, N.J.

The ships are part of the long-range ship replacement program of the Federal Maritime Board and the Maritime Administration, and the contracts for construction call for participation by the Federal Maritime Board as a party to the contracts under the construction-differential subsidy provisions of the Merchant Marine Act, 1936, as amended.

Under the provisions of Public Law 805 of the 84th Congress, the Federal Maritime Board and the Secretary of Commerce are charged with the responsibility of assuring the proper distribution of shipyard work to protect the national interest. The law provides that with the approval of the President of the United States, shipbuilding contracts may be allocated to various areas of the country where it is deemed that such allocation will contribute to the national defense, even when shipyards in such areas have not been the successful low bidders for such shipbuilding contracts.

Public Law 805 provides that the increased costs of allocating shipbuilding contracts will be absorbed by the Government as a part of the cost of national defense of the vessels involved. Federal Maritime Board criteria for the allocation of a shipbuilding contract under Public Law 805 provides that the shipyard shall manifest a genuine interest in obtaining the contract, and that an important indication of the yard's interest is the competiveness of its bidding. The extent of unemployment of shipbuilding labor in an area and the lack of adequate facilities for shipbuilding are also taken into account.

In making its finding for the allocation of the four ships to the west coast yards, the Federal Maritime Board took into consideration, among other factors, the relative position of the various shipbuilding areas of the United States in the matter of dollar volume of ship construction, employment of available shipways, and the shipbuilding manpower employment situation. In each of these situations it was found that the west coast stood in a deficient position.

In dollar volume the Federal Maritime Board survey showed $1,440,306,000 (B) in shipbuilding contracts in east coast yards, $211,981,000 (M) in the gulf yards, $95,608,000 in the Great Lakes shipbuilding centers, and only $118,210,000(M) in ship contracts in west coast yards. Several east coast yards were found to have more work each than the entire west coast industry.

A study of the shipyard facilities and shipyard employment in the Nation showed a very grave deficiency on the west coast as compared to other areas in relation to the mobilization needs of the country.

The Federal Maritime Board pointed out to the President of the United States that it is the obvious intent of Public Law 805 to maintain shipyards at strategic points in the country at a level of activity to protect the national interest. It was pointed out that the surveys made by the Navy Department and Maritime Administration indicated the deficiency in this respect to be especially acute on the west coast. The Board stressed the responsibility that falls upon it under the provisions of the law to take cognizance of the urgency for the need of a wider dispersal of our shipbuilding potential to provide greater assurance in case of enemy attack for the survival of this industry in behalf of the Nation's security.

AMERICAN EXPORT LINES, INC.

Inspection and supervision, administrative expenses and travel, engineering

services and delivery of vessels to east coast of the United States in connection with the construction of 2 cargo vessels at National Steel & Shipbuilding Corp., San Diego, Calif., instead of by New York Shipbuilding Co., at Camden, N.J.

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2. Owners expense of inspection, travel, etc., during con

struction:

Subsidizable expense..

34, 319

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Total delivery expense ------- 64, 922 62, 545 $127, 467

Total reimbursable expense of allocation-------------- 301, 905 NOTE.-Since the delivery voyage lost money, there would be no offsetting credits.

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